Solvency refers to the ability of an individual or organization to meet its long-term financial obligations. It indicates whether the total assets exceed total liabilities, meaning that the entity can pay off its debts when they come due. A solvent entity is generally considered financially healthy and stable. In finance, solvency is often assessed using ratios, such as the debt-to-equity ratio or the current ratio. These metrics help investors and creditors evaluate the risk associated with lending money or investing in a business. Maintaining solvency is crucial for long-term success and sustainability.